Why do governments hate money? What people want from their money is a
good store of value, medium of exchange, unit of measurement and universal
acceptance-without it tracking their movements for Big Brother.

Private markets used to provide good commodity money before governments
got in the act. People traded goods for higher use goods that better possessed
the qualities of good money: easily identifiable, easily divisible, durable,
etc. Carl Menger, founder of the "Austrian" school of economics,
explained this development well in his Principles of Economics.

Unfortunately, governments seem unable to resist the idea of using money
to track their citizens. Our anti-money laundering laws for the past quarter
century under the misnamed Bank Secrecy Act have required banks and other
financial institutions to monitor our transactions and report large cash
or other suspicious activities to the government.

Congress passed quickly and with inadequate debate in the anti-terrorism
fervor new proposals to combat money laundering. What is rarely reported
is that the continuation of the current approach will fail to prevent
any terrorism. Our approach is not designed to prevent anything-it only
aims to make investigations easier after the fact. We are no safer from
terrorism by the financial provisions of the USA PATRIOT Act.

Unfortunately,
the Europeans show even less respect for financial privacy. Many European
nations have decided to give up their national monies in place of a single
Euro with the promise of easier comparison shopping and lower transaction
costs for traders and travelers. Bureaucrats have now seized on the opportunity
to use the new currency notes as people tracking devices. Reportedly,
the European Central Bank is developing a project to add radio frequency
identification tags into the fibers of the bank notes that will be introduced
in the next few years. Promising to thwart counterfeiters, the new tracking
RFID chips would be used to follow the money-and their owners. It wasn't
daring enough that euro is the first money in the world to begin as fiat
money not backed by anything of intrinsic value-now the bureaucrats want
to use money against their own people. Why do governments hate money so?

The technology would enable the carry tax on cash idea proposed most
recently by Marvin Goodfriend, a senior vice president of the Federal
Reserve Bank of Richmond. Happily, U.S. Representative Ron Paul spoke
out clearly and early. By shining a light on this idea in its infancy,
it retreated back under its rock. The carry tax would have tracked our
currency holdings and taxed the Federal Reserve Notes depending on how
long we held the cash.

As they say in the capital markets, money goes where it's welcome and
stays where it's well treated. Argentina seems a good case in point. When
the government there proposed a currency board-like system that promised
to hold U.S. dollar reserves for each Argentine peso about ten years ago,
money flowed into the system. One strength of an orthodox currency board
is that is stops politicians from disguising the failure of their irresponsible
fiscal policies through monetary inflation. However, the International
Monetary Fund helped the local, corrupt politicians subvert the otherwise
honorable system. Now that the government has been forced to admit it
has broken its promises, money is fleeing the country.

The multilateral organization born and allegedly designed to help the
functioning of the global capital markets is the International Monetary
Fund. In fact, the IMF's activities have been to reward irresponsibility
and corruption by national government officials. This marginal disincentive
to act fiscally responsible has actually exacerbated the crisis: Argentina
would be in a better position now to deal with its problems if it had
been forced to act sooner and before the IMF added to its debt burden.

All the IMF's lending to Argentina may have produced is to pass a greater
burden on to the next administration. It is no secret that former Treasury
Secretary Larry Summers was deeply involved in dictating IMF decision
making. Mr. Summers should stand up now and take responsibility for his
actions. Before the new excuse of fighting terrorism, official corruption
was the poster boy of the financial privacy haters. In reality, government
officials often say one thing and do another. Here is one more example.

In a capitalist economy, there are always alternatives. Even with our
legal tender laws giving the government default monopoly status, competitors
have emerged. Some of these have harked back to the atavistic desire for
honest money and blended it with new technologies. E-gold is the most
successful of these so far, but their decision to adopt Know Your Customer
policies may give the upstart GoldMoney.com room to maneuver.

If governments refuse to study history's lessons of irresponsible monetary
policies bringing down civilizations, perhaps it is time for us to follow
the advice of Nobel laureate F.A. Hayek and denationalize money. Let people
chose what money they want best through the marketplace. Let the best
money win!